10-Q: BT Brands Improves Profitability Amid Strategic Closures

BT Brands, Inc. reported improved net income for the 13-week period and a reduced net loss for the 26-week period, driven by operational efficiencies and strategic closures of underperforming restaurant locations despite a decline in overall sales.

Summary

• For the 13 weeks ended June 29, 2025, net sales were $3.78 million, an 8.1% decrease from $4.11 million in the same period of 2024, primarily due to two store closures.
• Net income for the 13 weeks ended June 29, 2025, improved to $55,031, a significant turnaround from a net loss of $69,952 in 2024.
• Loss from operations for the 13 weeks narrowed to $75,121, compared to a loss of $188,543 in 2024.
• Restaurant-level EBITDA for the 13 weeks improved to 15.9% of revenues ($600,661) from 10.6% ($437,613) in 2024.
• For the 26 weeks ended June 29, 2025, net sales were $7.01 million, a 4.0% decrease from $7.30 million in the same period of 2024, mainly due to store closures.
• Net loss for the 26 weeks ended June 29, 2025, improved to $274,818 from a net loss of $515,652 in 2024.
• Loss from operations for the 26 weeks improved to $367,317, compared to a loss of $819,372 in 2024.
• Restaurant-level EBITDA for the 26 weeks improved to 13.1% of revenues ($915,894) from 5.8% ($421,941) in 2024.
• The company closed its Village Bier Garten location in early 2025 and ceased operations at its Ham Lake, Minnesota, location in February 2025.
• The sale of the Richmond, Indiana, property was completed on August 13, 2025, for $550,000, with an estimated gain of $250,000 to be recognized in the third quarter.
• Cash and cash equivalents decreased to $560,068 at June 29, 2025, from $1,951,415 at December 29, 2024.
• Marketable securities increased to $2,970,284 at June 29, 2025, from $2,319,555 at December 29, 2024.
• Net working capital increased by $627,000 to $4.4 million at June 29, 2025, from December 29, 2024.
• Total investment in NGI Corporation, a related party, is $996,357, including $692,357 in demand loans and $292,372 in Disney-licensed water bottle inventory.
• Equity in net loss of affiliate Bagger Daves was $70,405 for the 13 weeks and $204,705 for the 26 weeks ended June 29, 2025.

Sentiment

Score: 7

Explanation: The company demonstrated significant operational improvements, including a return to net income for the recent quarter and substantially improved EBITDA margins through strategic closures and cost management. This indicates a positive trajectory in core business performance. However, overall sales declined, the cash position decreased, and there are ongoing challenges in the broader restaurant industry. The planned capital raise and the uncertainty surrounding the Bagger Daves affiliate introduce additional factors that temper an overwhelmingly positive outlook.

Positives

• Achieved net income of $55,031 for the 13-week period ended June 29, 2025, a significant improvement from a net loss of $69,952 in the prior year.
• Reduced net loss for the 26-week period ended June 29, 2025, to $274,818 from $515,652 in the prior year.
• Significantly narrowed loss from operations for both the 13-week (to $75,121 from $188,543) and 26-week (to $367,317 from $819,372) periods.
• Restaurant-level EBITDA margins improved substantially to 15.9% (13 weeks) and 13.1% (26 weeks), up from 10.6% and 5.8% respectively, demonstrating stronger operational performance.
• Food and paper costs decreased as a percentage of sales due to selective menu price increases, menu adjustments, and cost-cutting measures.
• Labor costs decreased as a percentage of sales due to enhanced labor cost controls and the closure of higher-cost locations.
• Occupancy costs declined as a percentage of sales due to the closure of underperforming units.
• Realized investment gains increased significantly to $79,026 (13 weeks) and $174,064 (26 weeks) compared to $29,562 in both prior periods.
• Completed the sale of the Richmond property post-period for a gross selling price of $550,000, with an estimated gain of $250,000.
• Engaged a third-party accounting services organization to enhance segregation of duties and improve internal controls.

Negatives

• Net sales declined by 8.1% for the 13-week period and 4.0% for the 26-week period, primarily due to the closure of underperforming locations.
• The company still reported an overall net loss of $274,818 for the 26-week period ended June 29, 2025.
• Cash and cash equivalents decreased significantly to $560,068 at June 29, 2025, from $1,951,415 at December 29, 2024.
• Equity in net loss of affiliate Bagger Daves increased for the 26-week period to $204,705 from $175,500 in the prior year.
• General and administrative costs increased as a percentage of sales for both periods, partly due to consulting costs directed toward company-wide cost control initiatives.
• Other operating expenses increased as a percentage of sales due to higher maintenance, utilities, and fees associated with increased use of third-party delivery.
• Unrealized gain on marketable securities decreased for both periods compared to the prior year.
• Investment in NGI Corporation and the purchase of Disney-licensed water bottle inventory reduced cash on hand.
• Bagger Daves announced it is negotiating with potential purchasers for store locations and would evaluate alternative options, indicating uncertainty for the affiliate.

Risks

• Capital requirements and the availability of capital to fund growth.
• Difficulties executing growth strategy, including completing profitable acquisitions.
• All risks related to acquisition of an existing business, including identifying a suitable target, completing comprehensive due diligence, the impact on financial condition of any debt incurred, the ability to integrate operations, and retaining management and key employees.
• Challenges related to hiring and retaining employees at competitive wage rates.
• Shortages or interruptions of supplies.
• Negative publicity.
• Competition from other businesses with significantly greater resources.
• Changes in economic conditions, including the effects on consumer confidence and discretionary spending.
• Inability to manage growth.
• Loss of key personnel.
• Labor shortages and increased labor costs.
• The impact of governmental laws and regulations.
• Failure to obtain and maintain required licenses and permits to comply with regulations.
• Adverse weather and other unforeseen conditions.
• Inadequately protecting intellectual property.
• Breaches of security of confidential consumer information.
• Material weakness in internal control over financial reporting.
• Unforeseen public health matters may impact the United States at any time.
• Increased tariffs may impact the economy in the future.

Future Outlook

The company expects to sell its Disney-licensed water bottles in the second half of 2025. Management plans to continue leveraging seasonal strength, cost reductions, and targeted sales initiatives for future growth, with a central focus on continued cost management and operational efficiencies. New initiatives for Burger Time in third-party delivery are expected to contribute to future sales growth. Bagger Daves is currently negotiating with potential purchasers for its store locations and will evaluate alternative options for the public company. The company projects approximately $112,000 in stock-based compensation will be recognized at $32,000 per year in each of the next three years, and $16,000 in 2028. Additionally, about $100,000 in stock-based compensation expense for stock options is projected over the next two years ($12,000 in the remainder of 2025 and $41,000 in 2026), and the remainder of $36,000 for Contingent Incentive Share Awards will be recognized in 2025.

Management Comments

• The Company's focus on operational efficiencies, disciplined expense management, and strategic closures of underperforming locations has resulted in improved margins and improved results despite lower sales volumes.
• Continued cost management and leveraging seasonal strengths are expected to be a central focus of management in future quarters.
• Our focus on operational efficiencies, disciplined expense management, and strategic closures of underperforming locations has resulted in significantly improved Store EBITDA margins.

Industry Context

The restaurant industry faces a challenging business environment characterized by intense competition, difficulties in attracting food service workers, and rapid inflation in input costs. There is a rapidly changing landscape in technology and food delivery, with major companies aggressively adopting smartphone and mobile delivery applications, expanding drive-through operations, and developing loyalty programs and database marketing. These trends are expected to continue as restaurants compete fiercely for customers, often through aggressive promotions and discounting.

Management Changes

Corporate Governance

Legal Proceedings

• There are no material pending legal proceedings to which the Company is a party or as to which any of its property is subject, and no such proceedings are known to be threatened or contemplated against it.

Related Party Transactions

• Total investment in equity and loans to NGI Corporation is $996,357 as of June 29, 2025.
• This includes $333,136 in demand loans to NGI, bearing interest at 15% (payable-in-kind), convertible into NGI Series B preferred stock and warrants at BT Brands' option.
• A $359,221 senior secured promissory note acquired from the original lender to NGI, bearing 12% interest and granting BT Brands a senior secured interest in all of NGI's assets.
• A $304,000 equity investment in NGI.
• BT Brands purchased $292,372 of Disney-character aluminum bottles through direct payments to vendors for the NGI Disney Water program, expecting to sell them in the second half of 2025. NGI has an option to repurchase these bottles from BT Brands at $1.50 per bottle.
• BT Brands' Chief Operating Officer, Kenneth Brimmer, is a member of NGI's board and its CFO.
• An Amendment and Restatement Agreement was executed on August 12, 2025, between BT Brands and NGI Corporation, amending and restating a prior agreement from April 2, 2025, regarding the bottle purchase and loan terms.

Stakeholder Impact

• Shareholders: The improved profitability metrics and reduced net loss are positive, but declining sales and a decrease in cash and cash equivalents warrant careful consideration. The potential at-the-market capital raise could lead to dilution.
• Employees: Strategic store closures (Village Bier Garten, Ham Lake, Minot Burger Time) indicate job losses at those specific locations, while improved labor cost controls suggest a focus on efficiency for remaining staff.
• Customers: Menu price increases and adjustments, along with increased use of third-party delivery services, could impact customer experience and costs.
• Creditors: Reduced net loss and significantly improved EBITDA margins suggest better operational health and capacity for debt servicing, which is positive for creditors.
• Suppliers: Cost-cutting measures and improved purchasing strategies could affect supplier relationships or pricing.

Next Steps

• Sell Disney-licensed water bottles in the second half of 2025.
• Continue leveraging seasonal strength, cost reductions, and targeted sales initiatives for future growth.
• Management will maintain a central focus on cost management and leveraging seasonal strengths in future quarters.
• Bagger Daves is negotiating with potential purchasers for store locations and will evaluate alternative options for the public company.
• Assess alternatives for the Ham Lake location, including the sale of the property.
• Recognize an estimated gain of $250,000 from the Richmond property sale during the third quarter.
• Consider utilizing outside consultants as an extension of management, potentially to assist in the accounting for significant acquisitions.

Key Dates

Recommendation

While BT Brands demonstrated significant operational improvements, including a return to net income for the recent quarter and substantially improved EBITDA margins through strategic closures and cost controls, the overall sales decline and reduced cash position warrant caution. The ongoing investment in NGI Corporation and the uncertainty surrounding the Bagger Daves affiliate introduce additional risks. The planned at-the-market offering could provide capital but also lead to dilution. A 'Hold' recommendation reflects the positive operational turnaround balanced against these lingering uncertainties and the need for sustained growth beyond cost-cutting.

Keywords

Restaurant, Fast Food, Casual Dining, SEC Filing, 10-Q, Financial Results, BT Brands, Burger Time, Keegans Seafood Grille, Pie In The Sky, Schnitzel Haus, Bagger Daves, NGI Corporation, Restaurant Operations, Cost Management, Strategic Closures, Investment Gains, Liquidity, Capital Resources, Share Repurchase, Equity Distribution Agreement, Disney Water Bottles